Short term
Trade view / 08 September 2016 at 5:08 GMT

Tight range candles in the SWE30 are prelude to volatility

Instrument: SWE30.I
Price target:
Market price:

The current tape of the OMXS30.I (SWE30.I) has been moving higher with various degrees of momentum since the Brexit lows. The tape has, from the swing higher off August 22 through, been especially dull, but has been going higher nonetheless. 

On September 5, the market managed to perform a Doji candle, followed by a larger range candle on September 6. Yesterday we printed another Doji, but the high mark of the current phase off the Brexit lows in June is thus far made up by that larger range candle. This implies the market is currently in balance, but there is reason to believe things won't stay this way.

Looking at the technicals we on Tuesday experienced a close outside the BollingerBands® which often implies a pullback is due. On the other hand we have oscillators in bullish positions without an obvious divergence, which is indicative of a strong market. Mixed signals.

Tuesday's candle (the longer range body) marked a high at 1445, which is a Gann pivot. The low of that candle is located at 1433. The 1433 – 1445 is currently no-man's land. A break higher out of the range opens the way for a move towards resistance at 1457, 1464 and ultimately 1471 if things goes well for bulls. 

A break lower out of the range would open up the path to 1426, 1419,1407 and possibly even 1396.

Management and risk description

The strategy appears quite clear and the plan is to await signals from the market. So, a break above 1445 calls for going long with targets of 1457, 1464 and 1471. The stop could initially be placed at 1 433. 

A break lower, out of the range calls for shorting the index with targets of 1426, 1419, 1407 and 1396 with a stop at 1445.

In both cases above, once the first target has been breached one can move the stop to entry. The idea is to stay with the position until at least the second target has been reached.

The main risk to breakout trades are fake breaks, i.e. a market that breaks support or resistance only to break back into the range. 

Parameters bullish case

Entry: buy a break above 1445.

Stop: 1333.

Target: 1457, 1464 and 1471.

Time horizon: 1 – 2 days.

Parameters bearish case

Entry: sell a break below 1433.

Stop: 1445.

Target: 1426, 1419, 1407 and 1396.

Time horizon: 1 – 2 days.

SWE30.I daily chart
SWE30.I daily chart
SWE30.I daily development chart
SWE30.I daily development chart
 Source: Saxo Trader. Create your own charts with SaxoTrader; click here to learn more 

— Edited by Gayle Bryant

For more on equities click here

Non-independent investment research disclaimer applies. Read more
DudetteUK DudetteUK
Super Mario chose his side :-)
Johan Berntorp Johan Berntorp
:) hope it is a descive one.
Johan Berntorp Johan Berntorp
Five waves down from Intraday peak. If one doesn't want to hold over the weekend now could be a good time to close this out a fraction in profit.
Johan Berntorp Johan Berntorp
We got a bounce from 1426, when price establish itself below that level 1415 should be next with an intermediate support at 1419.


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